Ohio House moves frack tax plan to Senate

COLUMBUS -- Over continued objections from Democrats and some Republican lawmakers, the Ohio House moved a long-debated frack tax plan to the Senate Wednesday, where the legislation faces an uncertain future.

HB 375 passed on a split vote of 55-35, capping more than two years of discussions on a proposal initially offered by Gov. John Kasich and significantly altered by the House.

A spokesman for the governor said this week that the current version of the legislation "falls short of what the governor believes is needed."

Senate President Keith Faber, R-Celina, told reporters Wednesday that his chamber would take time to review the bill.

"We'll continue to look at what the House has done," Faber said. "Remember, they've spent considerable time working on this bill, so we'll certainly take a look at it. I think we need to pass something on the severance tax. What that something is is the question, and we'll not act until we know the answer to that question."

HB 375 would set the tax rate on oil and gas produced via horizontal hydraulic fracturing at 2.5 percent, with lower rates for vertical wells.

The first $10 million of production will not be taxed, allowing companies to recoup their initial well investments. The state also would provide nonrefundable tax credits for commercial activity taxes paid on horizontal wells.

Of the resulting revenues, more than $20 million would go to state regulatory efforts, a new well-plugging program and geological mapping activities.

A total of 17.5 percent of the remainder would be directed to local governments, with specified amounts directed to eastern Ohio shale counties. The remaining money would be used for a statewide income tax cut.

"That will be a significant amount of money," Rep. Matt Huffman, R-Lima, said of the latter. "... One estimate that we have from the Legislative Service Commission is that will be about $316 million in income tax relief to Ohioans in the next five years."

Proponents of the bill said the legislation would provide clarity and certainty to producers, enable the state to gain some benefit from increased oil and gas production, cover regulatory costs and orphan well capping and provide additional funding for communities near the state's emerging shale oilfields.

"This is something that I've struggled with over the last several months," said Rep. Brian Hill, R-Zanesville. "... My support of this bill comes not from increasing the tax on the gas and oil industry ... but in some way making sure that our local governments that have to address the challenges, not just the opportunities, have an opportunity to do that."

Rep. Dave Hall,R-Millersburg, added later, "When you look at what is in this bill, you'll see a lot of things you're going to like."

Industry representatives also are voicing support.

"Today's approval of HB 375 demonstrates that compromise remains an important part of the legislative process," Tom Stewart, executive vice president of the Ohio Oil and Gas Association, said in a released statement. "We appreciate the efforts of the bill's sponsors and managers for tackling a difficult issue and bringing all parties together to reach reasonable solutions."

He added, "While we have concerns about aspects of the bill, which will increase the severance tax to 2.5 percent, we remain supportive of the legislation and urge swift approval by the Ohio Senate."

But Democrats opposed, calling for more support for counties in Ohio's Appalachian region and local governments rather than tax breaks that benefit wealthy residents.

Rep. Bob Hagan, D-Youngstown, said the proposed tax rate is well below other states with fracking activities.

"… Tax breaks for those that don't really need it," he said. "And let's ignore the poverty in Youngstown, in Cleveland, in Cincinnati. Let's ignore those that are struggling day in and day out."

Rep. Nick Barborak, D-Lisbon, said the bill doesn't do enough to address drug addiction, infrastructure needs and other problems in eastern Ohio.

"I would invite everybody in this body to come to Columbiana County and drive on our roads," he said. "My wife and I took a vacation a few years ago to Costa Rica. ... As you drive through that country, the roads are almost nonexistent, craters like you would find on the moon. ... It's starting to look like that around Columbiana County."